Expert: Don Sadler - 4/10/2005

Question
Hi Don, would you please give me some recommendations to deal with an IRS audit (personal income taxes)?

Thanks in advance,

Richard

Answer
Sorry for the delay but I was out of town and out of touch.

I am not a tax person but I can give you generic advice regarding being audited regardless of the reason or situation.  Generally speaking, as an “auditee” you have more control of the environment than you might imagine... you also face some risks.

You must realize that the person auditing you is doing so for some reason.  Something in your return flagged it as suspicious, you were chosen at random, or someone is deliberately messing with you (yes, that happens).

If you have filed in good faith there may not be any problem, they may just want to see some documented proof of a deduction or understand the basis of a deduction.  One of the key things IRS auditors look for is “reasonableness”. In other words, even if you lack documented proof (receipts, for example), you may still be able to take a deduction if you are reasonable in your amounts.

The person auditing you is typically under great pressure to produce results very quickly.  That is the bad things about being an auditor – the boss is always, ALWAYS, pushing to work faster.  Since you know this, you should use it to your advantage.  It is better for the auditor let you go and move on to the next audit than to spend too much time with you without getting results.  You can manage this by doing the following:

1) NEVER be belligerent or argumentative or uncooperative.

2) Don't be too smart – be a little dumb so they have to explain everything to you twice.

3) Always be courteous and helpful but very, very slow. Whatever they need – you are very happy to give to them but you don't have it with you... make a note of what they need.  Make the note wrong so you will return with the wrong thing.

4) When you return with the wrong thing, make them explain everything all over again as if you don't understand. Show them the note you wrote down before to prove that you are trying your best to give them what they want but it is all so confusing.

The point is that they know that the boss will be looking at the number of hours they are spending on your case and they will soon give up – unless your tax return is really wrong and you simply got caught being dishonest and they want to go for big bucks or make an example of you.

Remember, helpful but slow, slow, slow.